UK Supreme Court Clarifies Definition of Transferor in Tax Law Battle: Commissioners for His Majesty's Revenue and Customs v Fisher and another

Introduction

The UK Supreme Court case of Commissioners for His Majesty’s Revenue and Customs v Fisher and another ([2023] UKSC 44) addresses the intricate provisions of the transfer of assets abroad code (TOAA) and its application to tax law. The decision navigates through a labyrinth of statutory interpretation, judicial precedents, and the intentions behind tax legislation aimed at preventing avoidance. The focus rests on who can be deemed a “transferor” for the purposes of TOAA, exploring the boundary between corporate and shareholder actions.

Key Facts

The Fisher family appealed against HMRC’s tax assessments, arguing they should not be chargeable under section 739 of the Income and Corporation Taxes Act 1988 (ICTA 1988) for the income of a company they did not individually transfer assets to. Their central contention was that, as minority shareholders, they were not the “transferors” of the assets transferred by the UK company (SJA) to an overseas company (SJG), despite owning the controlling interest.

The crux of the dispute hinged on whether the provisions applied exclusively to natural persons who transferred assets abroad, or if they extended to those who, while not transferors themselves, had the power to enjoy the income arising from the transferred assets. The binding decision in Vestey and its treatment of the term “transferor” played a pivotal role in understanding the scope of TOAA and its application to this case.

Legal Principles

The court revisited the decision in Vestey, which narrowly construed the taxation provisions to apply only to the transferor, as well as Congreve, where the scope was broader. The key legal principles revolved around:

1. Statutory interpretation: A presumption against taxing individuals unless explicitly designated as taxpayers by clear statutory terms.
2. The meaning of “transferor”: Distinguishing between legal transferors (e.g., a company) and those who could potentially be seen as procuring the transfer (e.g., shareholders).
3. Overlapping of jurisdictions within legislation: Different treatment of individuals (section 739) and non-transferors (section 740) in the ICTA 1988, with each having a distinct fiscal significance.

The decision also considered the breaking point of the legal elasticity surrounding the common understanding of “procuring”. It delved into whether shareholders of a company, simply by virtue of their ownership, could be considered as having “procured” or “effected” a transfer. The presence of section 744 (which prevents duplication of the tax charge) was debated as to whether it influenced the interpretation of section 739.

Outcomes

The Supreme Court concluded that:

• The scope of section 739 is confined to individuals who are transferors of the assets. This notion remains intact despite the introduction of an apportionment mechanism in section 744.
• Shareholders cannot be treated as transferors simply due to ownership or voting power within a company.
• The motive defense within section 741 does not suffice to mitigate the challenges associated with identifying an individual as a transferor based on shareholding alone, as it does not consider the individual’s purpose but rather the transfer’s overall purpose.

Conclusion

The Fisher case elucidates a complex segment of tax law where historical precedent, the legislative text, and the principles of statutory interpretation interact. The court solidified the notion that the reach of TOAA provisions is to be tightly construed, focusing on actual transferors. The verdict underscores caution in extending liability and seeks clear legislative direction before attributing tax responsibility to shareholders for actions taken by their company. This benchmark ruling reinforces the importance of precise legislative drafting and substantiates the need for explicit statutory provisions when dealing with sophisticated tax avoidance measures.